Maintaining a Separate Reserve Fund

Maintaining a Separate Reserve Fund

In all provinces, a separate accounting must be made for the reserve fund.

The corporation should have a separate bank account for the reserve fund.

Not having a separate bank account for the reserve fund results in two complications:

1)  An amount payable to the operating fund for expenses paid by the operating fund

A corporation can purchase investments with its reserve fund money, and have the operating fund pay the reserve expenses from the general bank account. The reserve fund would later reimburse the operating fund. There would be an amount payable to the operating fund. This is acceptable under the regulation.

Alberta Regulation 27(2) allows commingling where the operating fund pays for expenses on behalf of the reserve fund, and is then reimbursed.

"Except for the purposes of paying for repairs to or replacement of depreciating property, neither a corporation nor any person holding money on behalf of the corporation is to commingle any funds that make up the corporation’s reserve fund with the operating fund or any funds of any other corporation or other entity." 27(2)

(There should never be an amount payable from the operating fund to the reserve fund.)

2)  Notional transfers cannot be recognized for purposes of the Act

Amounts allocated to the reserve fund, would not be considered reserve fund money until an actual physical transfer has been made. Otherwise, the corporation would be guilty of commingling reserve and operating funds.